Business Accounting Review
Questions
Course Introduction
Business Accounting introduces the fundamental principles and concepts of accounting as applied in business organizations. The course covers the recording, classification, and interpretation of financial transactions, preparation of financial statements, and analysis of financial reports for decision-making. Students will learn about the accounting cycle, double-entry bookkeeping, accruals, inventories, and internal controls. Additional topics include the ethical responsibilities of accountants, regulatory frameworks, and an introduction to management accounting. By the end of the course, students will be equipped with essential skills to understand and utilize accounting information in a business context.
Recommended Textbook
Financial and Managerial Accounting 10th Edition by Belverd E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) If $6,000 of Accounts Payable were paid in cash,what would be the balance of the Retained Earnings account?
A)$8,000
B)$28,000
C)$30,000
D)$36,000
Answer: C
Q2) The statement of cash flows would disclose the purchase of a building for cash A)nowhere on the statement.
B)in the operating activities section.
C)in the investing activities section.
D)in the financing activities section.
Answer: C
Q3) The board of directors of a corporation is responsible for all of the following except A)arranging for major bank loans.
B)authorizing contracts.
C)carrying out the daily operations of the business.
D)declaring dividends.
Answer: C
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Chapter 2: Measurement Concepts: Recording Business Transactions
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Sample Questions
Q1) All sales transactions generate immediate cash.
A)True
B)False
Answer: False
Q2) What are the steps in the posting process for the debit side of an entry?
Answer: The steps in the posting process for the debit side of an entry are:
\(\bold{Step 1:}\) In the ledger,locate the debit account named in the journal entry.
\(\bold{Step 2:}\) Enter the date of the transaction in the ledger and,in the Post.Ref.column,the journal page number from which the entry comes.
\(\bold{Step 3:}\) In the Debit column of the ledger account,enter the amount of the debit as it appears in the journal.
\(\bold{Step 4:}\) Calculate the account balance and enter it in the appropriate Balance column.
\(\bold{Step 5:}\) Enter in the Post.Ref.column of the journal the account number to which the amount has been posted.
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Chapter 3: Measuring Business Income: Adjusting the Accounts
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Sample Questions
Q1) Which of the following transactions will result in the recognition of an expense?
A)Interest accrued on a bank loan.
B)The declaration and payment of dividends.
C)Payment on accounts payable.
D)All of these choices.
Answer: A
Q2) Which of the following accounts would appear on an adjusted trial balance but probably would not appear on a trial balance?
A)Supplies Expense
B)Accounts Payable
C)Service Revenue
D)Cash
Answer: A
Q3) When a net loss occurs,it is subtracted from the balance in the Retained Earnings account.
A)True
B)False
Answer: True
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Chapter 4: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) The total amount of working capital for National Textile is
A)$2,000.
B)$6,000.
C)$4,000.
D)$30,000.
Q2) Which of the following is not a measure of profitability?
A)Current ratio
B)Return on assets
C)Return on equity
D)Debt to equity ratio
Q3) The asset turnover for National Textile is
A)1.00 times.
B)1.33 times.
C)0.83 times.
D)1.20 times.
Q4) Which of the following should be classified as an intangible asset?
A)Land held for future use
B)Long-term notes receivable
C)Special funds established to pay off a debt
D)Copyright
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Chapter 5: Accounting for Merchandising Operations
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Sample Questions
Q1) Under the perpetual inventory system,the return of goods from a customer is recorded with a debit to Sales Returns and Allowances.
A)True
B)False
Q2) Adding together the ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.
A)True
B)False
Q3) Income from operations is arrived at after considering all except
A)administrative salaries.
B)interest income.
C)the cost of sales.
D)sales returns and allowances.
Q4) Distinguish between the cost of goods available for sale and the cost of goods sold.
Q5) FOB shipping point means that the seller incurs the shipping costs.
A)True
B)False
Q6) Describe how to compute the cost of goods available for sale.
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Chapter 6: Inventories
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Sample Questions
Q1) Cost of goods sold equals $250,000,and average inventory equals $100,000.Days' inventory on hand equals
A)91.3 days.
B)146.0 days.
C)821.9 days.
D)912.5 days.
Q2) Inventory turnover is a measure expressed in terms of a percentage.
A)True
B)False
Q3) The portion of cost of goods available for sale that is not assigned to ending inventory is assigned to work in process.
A)True
B)False
Q4) Market is the amount that a merchandising company would pay at the present time for the same goods that are in the inventory and from the usual suppliers in the usual quantities
A)True
B)False
Q5) What is a LIFO liquidation,and what is its effect on income before income taxes?
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Chapter 7: Cash and Internal Control
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Sample Questions
Q1) Under the perpetual inventory system,the entry to recognize inventory losses usually contains a
A)debit to Cost of Goods Sold.
B)debit to Merchandise Inventory.
C)credit to Gross Margin.
D)credit to Cash.
Q2) Under an effective system of internal control,errors occur only as a result of fraud or dishonesty.
A)True
B)False
Q3) Invoices are documents prepared by a vendor and sent to the accounting department of its customers.
A)True
B)False
Q4) The periodic inventory system provides no means of identifying losses from spoilage,shoplifting,and theft.
A)True
B)False
Q5) Why do businesses need to keep some currency on hand?
Q6) On a balance sheet,what items normally are included in Cash?
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) The entry to record the Uncollectible Accounts Expense would be:
A)Uncollectible Accounts Expense 12,000 Allowance for Uncollectible Accounts 12,000
B)Uncollectible Accounts Expense 15,000 Allowance for Uncollectible Accounts 15,000
C)Allowance
Q2) The higher the receivables turnover,the lower the days' sales uncollected.
A)True
B)False
Q3) Under the allowance method,when a year-end adjustment is made for estimated uncollectible accounts,
A)total assets decrease.
B)liabilities increase.
C)total assets are unchanged.
D)net income is unchanged.
Q4) Explain the two methods used to estimate uncollectible accounts.
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Chapter 9: Long-Term Assets
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Sample Questions
Q1) Which of the following costs normally is expensed in the year incurred,regardless of the extent of future benefit?
A)Technology
B)Customer lists
C)Research and development
D)Leasehold improvements
Q2) Equipment was purchased for $117,000.It had an estimated residual value of $18,000 and has a current carrying value of $75,000.Its depreciable cost must have been
A)$42,000.
B)$99,000.
C)$124,000
D)impossible to determine from the facts given.
Q3) A building not currently used because economic conditions have limited a company's expansion is classified as an investment.
A)True
B)False
Q4) What is goodwill and when may it be recorded?
Q5) What commitments must a company account for in determining its free cash flow?
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Sales Tax Payable is an example of a(n)
A)estimated liability.
B)contingent liability.
C)trade liability.
D)definitely determinable liability.
Q2) An estimated liability is not a definite obligation of the firm because the amount cannot be definitely determined.
A)True
B)False
Q3) Which of the following phrases is not descriptive of an ordinary annuity?
A)Payments made at the beginning of equal periods of time
B)Both present and future value can be calculated
C)Compound interest assumed
D)Series of equal payments
Q4) Lines of credit from the bank need not be disclosed in the financial statements or in the notes.
A)True
B)False
Q5) Explain why a creditor would be concerned if your company had a current ratio of less than 1.0?
12
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Chapter 11: Long-Term Liabilities
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Sample Questions
Q1) Piper Company issued ten-year,8 percent bonds payable in 20x5 at a premium.During 20x5,the company's accountant failed to amortize any of the bond premium.The omission of the premium amortization will
A)cause net income for 20x5 to be overstated.
B)not affect net income reported for 20x5.
C)cause net income for 20x5 to be understated.
D)cause retained earnings at the end of 20x5 to be overstated.
Q2) Neville Co.issued 20-year term bonds at a discount in 20x5.Interest is payable semiannually.Which of the following statements is true,assuming that the effective interest method of amortization is used for the bond discount?
A)Interest expense decreases each six-month interest period.
B)Interest expense as a percentage of the bond's book value changes from period to period.
C)Interest expense increases each six-month interest period.
D)Interest expense remains constant in amount for each interest period.
Q3) The call price of bonds is usually above face value.
A)True
B)False
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Chapter 12: Stockholders Equity
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Sample Questions
Q1) Preferred stock is considered the residual equity of a corporation.
A)True
B)False
Q2) Which of the following classifications represents the largest number of shares?
A)Authorized shares.
B)Outstanding shares.
C)Treasury shares.
D)Issued shares.
Q3) A stock split normally increases total stockholders' equity.
A)True
B)False
Q4) Which of the following would not affect the balance of the Retained Earnings account?
A)Stock split
B)Net loss
C)Cash dividend declared
D)Stock dividend declared
Q5) The account Common Stock Distributable is classified as a current liability.
A)True
B)False
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Chapter 13: The Statement of Cash Flows
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Sample Questions
Q1) For this item extracted from the financial statements-Interest Expense (assume that cash payments are equal to amount reported)-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.
Q2) For this item extracted from the financial statements-Decrease in Accounts Receivable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.
Q3) A cash flow yield of 2.5 times is considered better than one of 3.0 times.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Write-downs and restructurings increase current operating income and decrease future income by shifting future costs to the future periods.
A)True
B)False
Q2) Horizontal analysis will result in common-size statements.
A)True
B)False
Q3) If Year 1 equals $2,800,Year 2 equals $3,108,and Year 3 equals $3,668,the index number to be assigned for Year 3 in trend analysis,assuming that Year 1 is the base year,is
A)100.
B)141.
C)131.
D)136.
Q4) A ratio of net income of $100,000 to sales of $1,000,000 can be stated as A)Net income is 1/10,or 10 percent,of sales.
B)For every dollar of sales,the company has an average net income of 10 cents.
C)The ratio of sales to net income is 10 to 1 (10:1),or sales are 10 times net income.
D)All of these choices.
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Chapter 15: Managerial Accounting and Cost Concepts
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Sample Questions
Q1) Period costs flow through three types of inventory accounts before becoming part of the cost of goods sold amount.
A)True
B)False
Q2) Cost of sugar is an indirect cost in the manufacture of candy bars.
A)True
B)False
Q3) Materials and supplies that cannot be traced conveniently to specific products are called
A)indirect materials.
B)raw materials.
C)waste materials.
D)direct materials.
Q4) Which of the following documents initiates the purchasing of materials?
A)Job order cost sheet
B)Receiving report
C)Purchase request
D)Purchase order
Q5) Give two examples of each stage in the management process.
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Chapter 16: Costing Systems: Job Order Costing
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Sample Questions
Q1) A company using the periodic inventory system records cost of goods sold when products are sold.
A)True
B)False
Q2) When a job has been completed,all of the costs assigned to that job are moved to the Cost of Goods Sold account.
A)True
B)False
Q3) Financial statements referred by external stakeholders compare actual unit costs with targeted unit costs.
A)True
B)False
Q4) Which of the following activities is a manager likely to carry out everyday?
A)Establishing selling prices for products
B)Ensuring quality of products produced
C)Estimating overhead costs to be incurred
D)Preparing financial statements for a period
Q5) The production process determines the product costing system needed. A)True
B)False
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Chapter 17: Costing Systems: Process Costing
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Sample Questions
Q1) Direct materials for 8,000 units were added at the beginning of the second process during October.During the month,8,300 units were completed and transferred to the third process.On October 1,there were 600 units in beginning inventory,and on October 31,there were 300 units still remaining in the process.Compute the equivalent units for direct materials for the second process for October using the FIFO costing method.
A)8,600
B)8,000
C)8,300
D)8,900
Q2) For a paint manufacturing company,the cost of producing each gallon of paint will likely differ.
A)True
B)False
Q3) In a process costing system,percentage-of-completion factors normally are obtained from
A)accounting records.
B)job order cost cards.
C)supervisors in the production departments.
D)time cards.
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Chapter 18: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) Distinguish between push-through and pull-through production methods.How does pull-through production meet the requirements of a just-in-time operating environment?
Q2) Lean's primary goal is to eliminate waste in business processes.
A)True
B)False
Q3) Which of the following activities would be part of the value chain of a manufacturer?
A)Inventory control
B)Product design
C)Cost accounting
D)Materials storage
Q4) Typically,there are four levels in the cost hierarchy.
A)True
B)False
Q5) A value chain involves a sequence of value-creating activities within an organization.
A)True
B)False
Page 20
Q6) How do managers measure an activity's performance?
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) If fixed costs are $180,000,variable costs are $38 per unit,and the product sells for $70,the breakeven point in sales dollars is $5,625.
A)True
B)False
Q2) Share and Care International is trying to determine how many clients must be serviced in order to cover its monthly service overhead.Using the high-low method,it has determined that the variable cost per client is $800 and that the monthly fixed overhead is $28,000. Assuming an average fee of $1,200 per client,the breakeven point per month is
A)35 clients.
B)80 clients.
C)70 clients.
D)55 clients.
Q3) Adding a desired profit level to breakeven computations will lower the number of units required to be sold.
A)True
B)False
Q4) Is breakeven analysis a tool that can be used for a service-oriented business? Explain your answer.
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Chapter 20: The Budgeting Process
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Sample Questions
Q1) The budget committee oversees each stage in the preparation of a master budget.
A)True
B)False
Q2) Receipt of stock dividends,depreciation,and amortization expense will not be recorded in the cash budget prepared by an organization.
A)True
B)False
Q3) Hang12 manufactures surfboards.During the upcoming quarter,it expects to sell 4,100 surfboards,after which it plans to have 500 surfboards remaining in inventory.If it currently has 200 surfboards on hand,how many surfboards will Hang12 have to produce for the upcoming quarter?
A)4,400
B)3,800
C)4,100
D)3,400
Q4) Budgets identify potential constraints before they become problems.
A)True
B)False
Q5) Describe three benefits budgeting provides to an organization's success.
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Chapter 21: Flexible Budgets and Performance Analysis
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Q1) Many organizations utilize responsibility accounting
A)to increasing the responsibilities of the accountants.
B)to assist in performance management and evaluation.
C)as a substitute to performance measurement.
D)as an alternative to generally accepted accounting principles.
Q2) What is the actual total cost?
A)$521
B)$595
C)$744
D)$1,031
Q3) Residual income is excess of operating income over net income.
A)True
B)False
Q4) A manufacturing company's human resource department is most likely a A)cost center.
B)discretionary cost center.
C)revenue center.
D)profit center.
Q5) What are some of the limitations of using ROI,residual income,and EVA to measure the performance of investment centers?
23
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Chapter 22: Standard Costing and Variance Analysis
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Q1) It is not necessary to provide an area on the performance report for a manager's reasons for variances.
A)True
B)False
Q2) Lucas Company has set standards for the manufacturing of clay pots to be 2 pounds of direct materials,per pot,at a cost of $3 per pound.During the current period,600 pounds of direct materials were purchased for $1,872.All of the direct materials were used to manufacture 295 pots.Lucas' direct materials price variance was
A)$102 (U).
B)$72 (U).
C)$102 (F).
D)$70 (U).
Q3) When actual capacity exceeds expected capacity,the result is a(n)
A)favorable fixed overhead volume variance.
B)favorable materials quantity variance.
C)unfavorable overhead variance.
D)unfavorable materials quantity variance.
Q4) Differentiate between the variable overhead spending variance and the variance overhead efficiency variance.
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Chapter 23: Short-Run Decision Analysis
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Q1) Irrelevant costs
A)do not differ among alternatives.
B)can be avoided by a business.
C)are the same as opportunity costs.
D)are costs that will be incurred in the future.
Q2) Divisional income (or segment margin)for South Division is
A)$(100,000).
B)$(75,000).
C)$(10,000).
D)$125,000.
Q3) Examples of relevant fixed costs for a special order decision are the purchase of additional machinery,an increase in supervisory help,and an increase in insurance premiums required by a specific order.
A)True
B)False
Q4) The objective of segment profitability decisions is to identify the segments that have a negative segment margin so that managers can drop them or take corrective actions.
A)True
B)False
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Chapter 24: Capital Investment Analysis
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Q1) When deciding whether to keep or replace a fixed asset,the asset's carrying value could be relevant to the decision.
A)True
B)False
Q2) Assume revenues are received in cash and expenses,except for depreciation,are paid in cash.Based on this assumption,which of the following statements is true?
A)Net cash flows for a period are equal to net income minus depreciation expense.
B)Net cash flows for a period are equal to net income.
C)Net cash flows for a period are equal to net income plus depreciation expense.
D)Net cash flows for a period are equal to net income plus income tax expense.
Q3) Using the above information for Rodriguez,the accounting rate of return for the project is
(Round your answer to a whole percent)
A)51 percent.
B)22 percent.
C)67 percent.
D)40 percent.
Q4) In what situations is the payback period method especially useful?
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Chapter 25: Pricing Decisions, including Target Costing and Transfer Pricing
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Q1) Target costing identifies a competitive price and then adds the desired profit to determine a target cost.
A)True
B)False
Q2) Development of a transfer price involves
A)legal agreements.
B)increases in insurance premiums.
C)redistribution.
D)negotiation.
Q3) Using a negotiated-price approach,what is the negotiation ceiling?
A)$16.44
B)$17.72
C)$19.00
D)$22.80
Q4) The gross margin pricing method computes unit selling price based on production costs rather than total costs.
A)True
B)False
Q6) What are the four pricing rules managers must follow to stay in business? Page 27
Q5) Explain how target costing differs from traditional cost-based pricing methods.
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Chapter 26: Quality Management and Measurement
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Sample Questions
Q1) The gradual and ongoing improvement of products and processes while reducing costs is known as
A)TQM.
B)process mapping.
C)kaizen.
D)benchmarking.
Q2) Nonfinancial measures of quality include vendor performance.
A)True
B)False
Q3) The concept of quality can also embody such intangibles as brand prestige and life style.
A)True
B)False
Q4) The costs of quality are made up of
A)prevention costs and appraisal costs.
B)internal failure costs and external failure costs.
C)costs of conformance and costs of nonconformance.
D)product design and production performance.
Q5) Name four categories of nonfinancial measures of quality and provide an example of each.
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Chapter 27: Accounting for Unincorporated Businesses
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Q1) When a new partner is admitted,the old partnership agreement is still in effect.
A)True
B)False
Q2) Liquidation of a partnership is the process of ending the business.
A)True
B)False
Q3) Under the partnership form of business,it may be difficult to raise large amounts of capital.
A)True
B)False
Q4) Which of the following does not result in the dissolution of a partnership?
A)Death of a partner
B)Admission of a new partner
C)Withdrawal of a partner
D)Sale of partnership assets
Q5) One of the benefits of forming a partnership is limited liability.
A)True
B)False
Q6) List four advantages and four disadvantages of the partnership form of business.
Page 30
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Chapter 28: Accounting for Investments
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Q1) All the interest income on U.S.Treasury bills is recorded at maturity.
A)True
B)False
Q2) When the market value of available-for-sale securities exceeds cost,an unrealized loss appears in stockholders' equity as an addition.
A)True
B)False
Q3) Held-to-maturity securities are valued on the balance sheet at cost adjusted for the effects of interest.
A)True
B)False
Q4) The equity method generally should be used to account for an investment in stock when the level of ownership is
A)between 20 and 50 percent.
B)10 percent or more.
C)less than 20 percent.
D)between 10 and 40 percent.
Q5) How is the purchase of long-term investments in bonds accounted for when purchased between interest payment dates?
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